Green investing hits the fast lane

It was Elon Musk who turbocharged green investing. His vision of fast, exotic electric cars grabbed the public’s imagination like nothing else – young and old alike.

Electric cars have been around since the 19th century and the Toyota Prius – the world’s first mass-produced electric-hybrid car – was launched two decades ago.

But Musk’s charisma and track record as a tech entrepreneur was a game-changer.

Suddenly ordinary consumers realised electric cars weren’t just for eco-warriors, or film stars showing off their green credentials. They were for everyone – even if Tesla’s first models were out of most people’s price range.

Tipping point

It marked, perhaps, the tipping point for green investments. Advances in wind, solar and hydro technologies have driven down costs dramatically in the past decade.

Gone are the days of big government subsidies to invest in wind and solar farms – green energy is starting to compete on equal terms.

No longer must ethical investors make do with modest returns to salve their consciences, as green funds get more and more competitive.

The new 'affordable' Tesla Model 3 Photo: Tesla

Leap of faith

Musk was a respected entrepreneur putting his own and his shareholders’ money on the line in an inspirational leap of faith.

When Tesla’s first regular-priced car, the stylish model 3, was unveiled in early July with prices starting at $35,000, it reinforced the message that green doesn’t have to be either hair-shirt or boring. And consumers obviously agreed, with 400,000 deposits from potential buyers in the first two months.

Tesla’s not alone. General Motors beat Tesla to the punch, unveiling the somewhat more prosaically-styled Chevrolet Bolt (think Toyota Prius) just ahead of the model 3, at a similar price and with a slightly greater range.

Meanwhile Volvo, now owned by Chinese car manufacturer Geely, announced a few weeks ago that all new cars will include an electric motor from 2019, in a dramatic move to end reliance on the internal combustion engine.

Advancing technology

It’s not just on the road where green investments are starting to gain traction. The batteries used by those ‘green’ cars have to be charged up somewhere – and it’s not very green if the electricity comes from power stations burning fossil fuels.

And while green subsidies do still exist, times are changing. Mass production, combined with those advances in technology, are making eco-friendly electricity generation more and more viable.

Five solar plants came on stream in Italy at the start of June 2017, producing 63 megawatts of energy without any subsidies. Battery prices fell 35% last year, while sales of those electric car rose by 60%.

Additional renewable power capacity installed in 2016 set new records, with an extra 161 gigawatts – increasing global capacity by 9% compared with 2015, according to REN21, the Renewable Energy Policy Network.

What companies are involved?

But who is funding the renewables boom? is it ‘old tech’ companies diversifying to protect shareholder value, or new startups cashing in on the opportunities as the old behemoths flounder?

The Carbon Clean 200 list – compiled in a bid to promote ‘clean capitalism’ – ranks the 200 largest companies worldwide by their total clean-energy revenues.

There are plenty of big names in the list, with global giants such as Siemens, Toyota, Philips, Panasonic, Schneider and Bombardier dominating the top 10.

But there are others, too. Danish manufacturer Vestas, coming in at number 7 on the list, was founded in 1898. But in 1979 it saw the opportunities in wind power when the renewables industry was in its infancy, and is now one of the world’s largest producers of wind turbines.

Wind turbines have tumbled in price and are now big business Photo: Jesper Baerentzen

Dong, which builds and runs wind farms, was founded in 2006 from the merger of six smaller Danish energy companies, and is now 11th on the list. Tesla comes in at number 19.

The best way to invest

You could buy high-profile stocks such as Tesla or put your money into one of the big renewable energy players.

A safer option, however, is to invest in a ‘green’ mutual fund that spreads the risk across a wide range of companies with sound ethical credentials.

In fact, these days the term ‘green investments’ is often used to cover the whole spectrum of investments based on ethically-sound criteria.

Using a comparison site such as Ethical Consumer, you can not only find out what funds are available, but also refine your choice based on a wide range of ethical issues (membership required, free trial).

Vegan fund

Using simple on-screen sliders to adjust your ethical preferences, you can screen out companies with poor working conditions, firms that deal in the arms trade, pornography, alcohol and tobacco, and companies that operate in countries with poor human rights records. There’s even a vegan fund.

Ethical Consumer also allows you to check the ethical track record of individual companies.

But of course you can make even more of a social impact with your investment by putting money into funds that back companies doing the ‘right thing’ and trying to make a difference.

Environmentally-focused companies are the most obvious example, but there are also many businesses in other sectors trying to make a positive change, such as those working with the Fairtrade Foundation.

Another organisation, the Social Stock Exchange, offers a shop window for ethical companies seeking investors. You can browse through the list of companies, select the ones that look interesting and discover more about who they are and what they do.

You can then either invest in those companies through your broker, either directly or through a fund.

Active management

These days a huge number of mainstream funds are what are known as ‘passive’ or ‘tracker’ funds – they use computer trades to buy and sell stocks that mirror the holdings of other funds in the sector they operate in. Most of the time this ensures a positive return, which is why they have become so popular.

In contrast, most of the funds in the ethical sector are ‘actively managed’ – that means the manager and his or her team choose stocks based on careful research into the underlying strengths and weaknesses of the companies concerned.

Of course, given the ethical criteria that have to be screened, too, there is really no other option. But good active managers will do far more than just basic screening for business potential and ethical issues

They will visit the companies the invest in, tour their factories, and often raise issue of concern at board level or even at shareholders’ meetings if necessary. And if they have a large enough stake, they can use their holding to steer those companies in a positive direction.

And if your ethical concerns are broader and less narrowly focused – you just want to make sure companies a fund invests in have a solid track record for being good employers and good ‘global citizens’ – you can do that, too.

This type of business ‘good behaviour’ is known as corporate social responsibility (CSR). Adopting this approach of socially responsible investing (SRI) will bring many more funds into the frame.

Healthy rewards

But are you sacrificing financial reward for the sake of your principles? Not according to Lee Coates, director of Ethical Investors investment advisers in Cheltenham.

“So many people come to us and say, ‘I’m going to do this anyway because of my personal values’ with the assumption it won’t be anywhere near a normal investment,” he says.

“Getting into something that’s community based, investing in the sort of thing you want to do and that is actually offering a reasonable return – if you built a little portfolio of those, that’s not a bad thing to do.

“We’ve got some clients who have pulled all their money out of equities and are doing their own stuff with peer-to-peer lending.”

‘Stronger ethical dimension’

Andy Hockaday adds: “You’ve got a stronger ethical dimension but you have to let go of the financial. What that means is either you will get a lower rate of return, or it will be more volatile, or there will be other risks. But they do come up with some quite attractive interest rates.

“It’s the sort of thing we talk about with our clients but we suggest only a small amount of their portfolio goes into this sort of thing, and they need to take account of the fact they could lose it all. So it’s about awareness and understanding of the risks.”

Westmill Solar is just one of a number of investment options listed by share-matching service, Ethex, which acts as a marketplace for buying and selling shares in non-listed ethical companies. (www.ethex.org.uk)

It’s important to bear in mind, however, that investments of this type, as with publicly-listed shares, are not covered by the Financial Services Compensation Scheme.

Ethical investment awards

If you’re looking for a starting point when it comes to ethical investing, here is a list of finalists in the 2017 Sustainable Investment Awards run by Investment Week magazine. The results will be announced on 17 November 2017.

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